SPACE - Stockscores Principles of Abnormal Chart Evaluation
Stockscores.com Perspectives for the week ending January 5, 2014
In this week's issue:
Stockscores Market Minutes Video
In the long term, stocks have a strong correlation to the sector and market indexes. When seeking out long term trades, be sure to consider the charts of the longer term index ETFs. This week, Tyler shows what to look for in these charts plus he provides his regular market analysis to start 2014. View the video by clicking here.
The Stockscores Principles of Chart Analysis
The ability to analyze a stock chart is essential to trading stocks whether you take a technical or fundamental approach. The chart shows us what all market participants know about a stock.
Most market beating stocks start their strong trends with abnormal price behavior. However, not all abnormal price behavior leads to a market beating trend. The key qualifier of abnormal price action is the stock chart. We can do well if we focus on the stocks trading abnormally out of predictive chart patterns.
That makes it important to understand the Stockscores Principles of Abnormal Chart Evaluation. To read any chart, you need to be able to see and understand the following:
Resistance - a ceiling price on the chart, drawn across the price tops. This price level represents the maximum that investors were willing to pay for the company fundamentals in the past. A break through a price ceiling implies positive fundamental change in the company's business.
Support - a floor price on the chart, drawn across the price lows. This represents the minimum that the sellers were willing to take for the company fundamentals in the past. A break down through support implies negative fundamental change.
Optimism - when the buyers are in control of the market, the bottoms will be rising from left to right. This is a sign of optimism.
Pessimism - when the sellers are in control of the market, the tops will be falling from left to right. This is a sign of pessimism.
Price volatility - the wider the range between support and resistance, the more volatile the stock is and therefore, the more uncertain investors are about what the company is worth. When a stock is trading in a sideways, narrow range, investors have confidence that the price of the stock is a valid representation of the company fundamentals.
Abnormal Activity - abnormal breaks from low price volatility imply new fundamentals that may not be widely known. A breakout through resistance, from optimism, from low price volatility is a good signal to buy.
The videos on the Stockscores Trader Training page highlight these principles visually, be sure to check them out as well.
Whether you are a short term active trader considering intraday charts or a long term investor taking trade signals off of a weekly chart, these six characteristics of chart pattern reading are essential to picking winning stocks.
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The markets have been pretty quiet over the past two weeks, a typical seasonal slowdown. There has been some show of strength in the mining sector which is oversold but I think it is too early to be optimistic about this group. US stocks continue to provide leadership with Biotech a source of many good short term trades. I don't have any feature stocks this week but expect we will be back to normal next week.Back To Top
References
Get the Stockscore on any of over 20,000 North American stocks.
Background on the theories used by Stockscores.
Strategies that can help you find new opportunities.
Scan the market using extensive filter criteria.
Build a portfolio of stocks and view a slide show of their charts.
See which sectors are leading the market, and their components.
Disclaimer
This is not an investment advisory, and should not be used to make
investment decisions. Information in Stockscores Perspectives is often
opinionated and should be considered for information purposes only. No
stock exchange anywhere has approved or disapproved of the information
contained herein. There is no express or implied solicitation to buy or
sell securities. The writers and editors of Perspectives may have positions
in the stocks discussed above and may trade in the stocks mentioned. Don't
consider buying or selling any stock without conducting your own due diligence.
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